OPEC may not be cutting crude oil production after all

The prospect of a crude oil production cut from OPEC —
tentatively agreed to
late last month — may be scuppered before it’s even been
inked if the latest headlines are anything to go by.

The latest source of unease comes from Iraq, which, over the
weekend, joined the likes of Iran, Nigeria and Libya in seeking
an exemption to cutting oil output for an OPEC deal, scheduled to
be discussed at the group’s upcoming meeting in late November.

“Iraq is looking for an exclusion for an OPEC deal to cut oil
production because of its current conflict with militants,” wrote
Vivek Dhar, a mining and energy analyst at the Commonwealth Bank.

“The country claims it currently produces more than 4.7 million
barrels per day, which could still rise further in coming months.
Iraq’s estimate of its oil output is 500,000 barrels per day more
than OPEC’s estimate and remains a point of contention as OPEC
prepares to assign country-specific quotas on November 30.”

On Sunday, Iraq’s Oil Minister, Jabar Ali al-Luaibi, said the
nation should be exempted from output restrictions as it was
fighting a war with Islamic State, according to reports from Reuters.

“We are fighting a vicious war against IS,” Luaibi said in
a briefing for reporters, adding that Iraq should get the
same exemption as Nigeria and Libya.

Demonstrating the difficulty OPEC members may have in agreeing to
set production quotas for individual members, al-Amiri said
Iraq’s share of global production had been compromised by years
of conflict, stating that it “should be producing 9 million [per
day] if it wasn’t for the wars.”

“Some countries took our market share,” he told reporters on the
reason why Iraq, to date, has refused to cut back output.

On the upcoming OPEC meeting scheduled for November 30, he said
Iraq would make its case at OPEC “in a pleasant environment” to
avoid tension.

While Iraqi officials wish to conduct negotiations within “a
pleasant environment”, it underlines why a deal to limit
production at this meeting may prove to be a bridge too far, says
Dhar.

“The internal disagreement between OPEC members remains the
primary obstacle to an OPEC deal being enforced.” he says.

Dhar also says that Russia, a non-OPEC member, has also refused
to commit to cutting output to support an OPEC deal, stating that
“Russia’s latest draft of its energy strategy points to a mild
increase in oil output from 10.9mb/d currently to 11.1 mb/d by
2020”.

Writing earlier this month, Dhar suggested that given the
unanswered questions surrounding the tentative OPEC agreement and
the threat posed by the US shale oil industry, an OPEC’s
agreement on November 30 “probably has more chance of failing
than succeeding”.

In early Asian trade on Monday, front-month WTI futures have
fallen by 0.6% to $US50.54 per barrel, mirroring a similar
decline in Brent futures, the global benchmark price.